The Southwest Florida real estate marketplace is as bleak as it looks and is still six years or so away from recovery.
Federal financing for lower-income buyers is about the only success story for government assistance today.
So says Ross McIntosh of Naples, a veteran real estate dealer and analyst who now buys, fixes and sells foreclosure homes.
He is this week’s guest on Comcast’s "One on One with Jeff Lytle.’’
Video and transcript highlights of that and past interviews are available at naplesnews.com/oneonone. The 30-minute program with Curatolo, taped Wednesday morning, will be shown in its entirety Sunday at noon on Comcast CN 14.
Lytle is editorial page/Perspective section editor of the Daily News.

The Southwest Florida real estate marketplace is as bleak as it looks and is still six years or so away from recovery.

That is hurting the "Three Oaks corridor" in Estero as traditional neighborhoods give way to college-student housing.

Federal financing for lower-income buyers is among few bright spots today.

So says Ross McIntosh of Naples, a veteran real-estate dealer and analyst who now buys, fixes and sells foreclosure homes.

He is this week's guest on Comcast's "One on One with Jeff Lytle."

Video and transcript highlights of that and past interviews are available at naplesnews.com/oneonone. The 30-minute program with McIntosh, taped Wednesday morning, will be shown in its entirety today at noon on Comcast CN 14.

Lytle is editorial page/Perspective section editor of the Daily News.

* * *

Lytle: How soon will we do one of these programs when the news is good?

Give us a size-up of the market. Where do we stand?

McIntosh: Well, we've been talking for some time about increased activity in the under-$300,000 range. That activity continues to manifest itself and, if anything, to increase. Most of that activity, of course, is concentrated in bank-owned property — short sales, where the sale of the property is less than the outstanding mortgage.

Part of the reason that we're seeing — in fact the largest reason that we're seeing activity in that range is that we've actually seen what I would consider to be price collapse. That is loss in value of 50 percent from what might have been a reasonable expectation in 2005. That is to say, that $300,000 price range, more often than not, the home is selling for half what might reasonably have been expected to be its value in 2005.

We're beginning to see now, for the first time in a couple of years, an uptick in sales velocities above $300,000. But again, that increase is being stimulated by dropping prices above $300,000.

Wherever you draw the line, prices tend to be stickier at the high end. That is, slower to drop at the high end than they have been at the low end, for a variety of reasons.

But if you want to sell a house in the high end today, you're going to offer a significant discount, for the most part. With most property types you're going to have to offer a significant discount over what your expectations might have been a couple of years ago.

Lytle: Is there a difference between the real-estate market in Lee County and Collier County?

McIntosh: Yes, very much so. Our experience has been that prices in Collier County have not dropped, generally speaking, as significantly as they have in some Lee County markets.

For example, Lehigh Acres, whereas a home might have been $350,000 in 2005, in 2009 that house is $80,000. We have not seen that significant a collapse, generally speaking, in Collier County. Although eastern Collier, the eastern Golden Gate areas, the remote Estate areas, there are examples of homes that have suffered that kind of loss.

Lytle: How about Bonita Springs and Estero in Lee County?

McIntosh: Well interestingly enough, again my experience is there is a Three Oaks corridor that has been affected ... .

One of the things that happens as property values decline is that the nature of ownership changes. And in the Three Oaks corridor what we've seen is family neighborhoods, as prices drop and homes are lost in foreclosure, the new residents are college students. So we see entire neighborhoods being transformed from family neighborhoods to college rentals, which continues to erode value for the remaining families.

So there are influences that we might not have considered a couple of years ago when we said, gee, where is all of this leading? We're seeing the very nature of neighborhoods change.

So the next guy to buy a home in that neighborhood, it's not going to be a family supported, it's going to be a landlord, and that tends to drive down values even further.

So I think that's kind of the outstanding observation I would make relative to the Estero market.

Lytle: What can government do to help? Anything?

McIntosh: Well, we know one thing that they're doing that's helping the under-$300,000 market is that one of the largest lenders in Southwest Florida today is the U.S. Department of Agriculture. Collier County is an "agricultural" county. Essentially every property in the county qualifies for USDA lending. That's 97 percent financing.

Ninety-seven percent financing is available to borrowers of modest means through the U.S. government. I can point to that as something that the government is doing that's stimulating demand.

Certainly, we hear that the tax credit is stimulating demand. Whether it's stimulating demand or just gravy on a deal remains to be seen. But nevertheless, I think those are two examples of things that are helping to support the market and prices at the low end.

Lytle: Not to change the subject, but to be sure we get to cover this before we get too far along: The attention has been on residential real estate. What about commercial real estate? We see so many empty storefronts. You probably see an empty entire shopping center here and there.

What's in the picture?

McIntosh: Well, I think the expectation is that the wave of recapitalization, if you will, of commercial properties is really just beginning on a national level.

As commercial mortgages tend to be short-term mortgages, they tend to come up for renewal, and they're not renewable at their current levels. So as the debt comes due and requires renewal, the investor — the owner of the property — is required to inject additional equity into the property. And in this environment, that's a challenge.

Lytle: How soon will we start to see that inventory of surplus space start to be absorbed?

McIntosh: Wow. When consumers have money to spend in the shops that might occupy those spaces. And that's a function of a variety of things. We need more consumers, actually. We need more jobs, and the consumers that we've got need more income, and I think that's really questionable when that's ... .

That's anybody's guess when we'll see that in any substantive way.

I'm not anticipating a sudden turnaround. My expectation is that we will have locally a very gradual recovery, and it will occur one business at a time, if you will; one entrepreneur at a time, and it will be a very gradual process.

My personal expectation is that we're not going to reach an equilibrium — that is, where you and I sit in a room and everyone seems to be doing all right — I don't think we're going to reach that equilibrium for many years — about five, six, seven years.

Lytle: Your line of work these days is in foreclosure sales. You buy foreclosed homes, repair them if necessary, and resell them. Is that right?

McIntosh: There's always an investment in the property. We never buy anything and then resell it in the condition it was acquired. Our business model requires that we polish it up and put it into move-in condition so that it feels as though it was previously loved and not abandoned.

Lytle: And that's in contrast to what we know you for: your speciality forever was in syndication and putting together large pieces of land for large projects.

McIntosh: For sale to developers for their use as development projects.

Lytle: What do you say to the debate on what people who are upside down in their homes and their mortgages should do? Should they try and stay in those homes and make it right, even if it means losing money? Do whatever they can to say there? Or do they say, well, that's the economy, that's the way it goes, and walk away?

McIntosh: That's the strategic default discussion. That decision that I can pay but what's the point of paying, that's the strategic default discussion.

I'm not a participant in that discussion. I own my house and so I'm underwater real money. I haven't had to wrestle with that, if you will. I have the luxury of still considering honoring my debts to the moral question.

But the strategic default discussion disengages from whether it's a moral decision and makes that decision a purely financial decision.

My belief is that the lending industry — that if it is strictly a financial decision — is going to change its standards over time, that enough people are being affected by this real-estate collapse, involuntarily affected, that I am certain that the lending industry will find a way to lend those people money to buy cars and buy televisions and to buy etc.

We need more consumers. We can't say, just because you lost your house, we're never going to let you borrow money again. We're going to make it possible for those people to borrow money, and my belief is that if enough people make the strategic default decision, that we'll figure out how to reintegrate them into the economy as well.

Lytle: You've made the comment that Southwest Florida is a poster child for a bubble market. Can you elaborate?

McIntosh: We tended to think that the bubble was driven by investors — carpetbaggers somehow — when the reality is we were all victimized. Many of us were victimized by this market. If we had more than one home, what was the rush to sell our first home before we bought a second home, because the first home was still going up. And then when the music stopped, suddenly we're caught with two homes, both with falling values.

If you can point to value reductions of 50 percent, which we've just been discussing, as a norm, then certainly that was a bubble market.

Lytle: You said victimized. Also many of us benefited from that too. We were willing participants.